Banks and credit unions are traditionally stalwart pillars of their communities, bestowing continuity and stability to generations of consumers and local businesses. Your branch managers will tell you that even today, in the digital age, grandparents who financed their home at your bank still bring their grandchildren in to open a first savings account with tooth-fairy money. Community banking remains a strong family value.
According to a recent Global Consumer Banking survey from Ernst & Young, 93 per cent of respondents trust banks to keep their money safe. However, those same consumers said they don’t necessarily believe banks are the most technologically innovative financial providers.
Meanwhile, mobile payments totaled more than $3.5 trillion globally in 2017, and projections show digital banking will grow to more than 2 billion users worldwide by 2020. Consumers now expect the ease and rapid innovation of digital finance, and as a result, see traditional financial institutions as slow-moving behemoths – good for decades of continuity and stability, but not able to keep up with the pace of 21st century life.
Consider that the engine driving every bank operation – every check cashed, every monthly statement generated, every business deposit and every mortgage loan funded – is run on mainframe core technology that is several decades old. And, supporting operational software was written around that same time. Even the newest branches of established local banks still run on these same old core systems at the main location.
By contrast, tech companies with their digital-first approach can respond nearly instantly to consumer demand. The ease and convenience provided by digitally-native tech giants—information on demand, computers in your pocket, or products at your door in two days—have lessened the friction and inconveniences of everyday life. Tech companies have the resources and infrastructure to offer consumers what they see as a need, and they are now zeroing in on the financial industry and institutions that are not keeping up.
This disruption is shaking up the market in unprecedented ways. Banks are no longer the central player in financial transactions. Today’s banking model won’t be the same in just a few years, as brick-and-mortar branches are replaced by financial providers with a digital-first mindset, or those with digital in their DNA.
If it ain’t broke, don’t fix it?
Financial institutions’ boards of directors are asking themselves, “if our core technology has served us well for years, or decades, and it costs so much to change, why should we do it?” Your customers have the answer; they’re voting with their devices, if you’re willing to listen. Consumers upgrade phones, computers, even appliances when the technology becomes outdated and the new version will simplify their lives.
All markets align with whatever reduces friction or makes consumers’ lives easier. In the last 20 years, we’ve seen this happen time and again. Videotape rentals gave way to DVDs and then Netflix and kiosks killed Blockbuster. Kodak didn’t listen to the overwhelming data available and was swiftly replaced by the smartphone. Today’s voice-activated digital assistants are paving the way to make computing as easy as conversation, replacing keyboards and mice. This same trend is visible in banking: 78 per cent of millennials want digital financial transactions from Google, Square, Apple, and the like, instead of “analog” traditional banking.
Although on a larger scale, reducing friction and making consumers’ lives easier is the same driver for banks when it comes to the decision for digital transformation. However, community-sized banks and credit unions that are running on legacy core platforms face many challenges when upgrading or adding new features. This is largely because legacy cores use middleware to run everything, rather than open architecture and APIs. The core technology that has sustained the industry for the past 50 years may not be broken per se, but it will not survive the digital tsunami lashing the industry today.
Remaining relevant
Fortunately, the tide is turning, and the latest surveys show bank executives are planning – and budgeting – for digital change. Cloud-based, open architecture technology providers are not simply repackaging old engines, they are rewriting them from the code up in Oracle, Java, and HTML5 … not COBOL (designed in 1959). This ensures the core can communicate seamlessly with any of today’s and tomorrow’s systems, whether native or third-party.
In the case of NYMBUS, our cloud-based and API driven platform has been a real game-changer for FI’s previously hesitant to a core conversion. Slow and antiquated is replaced with automation, seamless integration, and Amazon-like user experience in a matter of months. That’s previously unheard of for a core conversion.
Signing on to a dedicated secure cloud-based core also means financial institutions can eliminate middleware and a handful of now redundant technology vendors right away. One of our customers formerly had 22 vendors for their systems. With NYMBUS SmartCore, they paired that down to 8.
Launching a digital-first bank is also an increasingly popular relevancy trend. While financial institutions are carefully exploring new core technologies and options for change, innovation needs to happen immediately for acquiring and retaining loyal customers to compete for market share. Digital banks are a great way to enable digital transformation and business growth at a fraction of the time and cost involved with selecting and then converting your legacy environments. This strategy does not eliminate the core as the enabler of banking transformation. Rather it accelerates the goal of delivering an exceptional experience for today’s banking customers.
Finally…
Those decades of serving the community has built up mountains of trust. People feel safer putting their money with a bank they know, rather than a flashy tech company they don’t. If banks adapt to the modern world, the trust capital they have built up over the years will ensure they survive and thrive in the 21st century.
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